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ITEM 1A. RISK FACTORS
We face a wide range of risks, and our continued success depends on our ability to identify, prioritize and
appropriately manage our enterprise risk exposures. Readers should carefully consider each of the following risks and all
of the other information set forth in this Form 10-K. These risks and other factors may affect forward-looking statements,
including those in this document or made by the Company elsewhere, such as in earnings release webcasts, investor
conference presentations or press releases. The risks and uncertainties described herein may not be the only ones facing
the Company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial
may also adversely affect our business. If any of the following risks and uncertainties develops into actual events, there
could be a material impact on the Company.
Difficult conditions in global capital markets and the economy could have a material adverse effect on our
investments, capital position, revenue, profitability, and liquidity and harm our business.
Our results of operations are materially affected by conditions in the global capital markets and the global economy
generally, including in our two primary operating markets of the United States and Japan. Weak global financial markets
impact the value of our existing investment portfolio, influence opportunities for new investments, and may contribute to
generally weak economic fundamentals, which can have a negative impact on our operating activities.
In recent years, global capital markets have been severely impacted by several major events. The financial crisis that
began in the latter part of 2008 saw dramatic declines in investment values and weak economic conditions as the global
financial system came under extreme pressure. Although U.S. markets began recovering in late 2009 and 2010, Europe
continued to struggle under a severely weakened banking system and investor concerns with sovereign debt levels.
Following a period of unprecedented intervention by governments and central banks, including the U.S. Federal Reserve
and European Central Bank (ECB), financial conditions improved from the dire conditions of the global financial crisis,
global recession, and European debt crisis. Recently, global markets have experienced materially higher levels of market
volatility due to concerns including changes in the market’s perception of global growth, additional ECB intervention, a
British exit from the European Union (EU) (Brexit), uncertainty surrounding Japan’s continued recovery amidst assorted
policy changes, significant declines in global commodity prices including oil, divergent monetary policies in the United
States versus many other developed economies, a newly elected U.S. president, and heightened concerns surrounding
the Chinese economy.
As we hold a significant amount of fixed maturity and perpetual securities issued by borrowers located in many
different parts of the world, including a large portion issued by banks and financial institutions, sovereigns, and other
corporate borrowers in the United States and Europe, our financial results are directly influenced by global financial
markets. A retrenchment of the recent improvements in overall capital market health could adversely affect our financial
condition, including our capital position and our overall profitability. Market volatility and recessionary pressures could
result in significant realized or unrealized losses due to severe price declines driven by increases in interest rates or credit
spreads, defaults in payment of principal or interest, or credit rating downgrades.
Following the election of Shinzo Abe as Prime Minister of Japan in December 2012, the new administration adopted a
new set of financial measures to stimulate the Japanese economy, including imposing negative interest rates on excess
bank reserves. In a December 2014 snap-election, the ruling Liberal Democratic Party (LDP) won a landslide victory,
further strengthening Mr. Abe's ability to implement economic reform and address key policy challenges. The Japanese
financial markets reacted with even lower rates on Japanese Government bonds, large increases in Japanese equity
market values, and a weakening of the yen relative to the U.S. dollar. More recently, as the Bank of Japan (BoJ) has
signaled to hold its policy rate at zero, the Japan Government Bond (JGB) yield curve has steepened producing higher
rates on longer maturity Japanese Government bonds.
Japan is the largest market for our products and we own substantial holdings in JGBs. Government actions to
stimulate the economy affect the value of our existing holdings, our reinvestment rate on new investments in JGBs or
other yen denominated assets, and consumer behavior relative to our suite of products. The additional government debt
from fiscal stimulus actions could contribute to a weakening of the Japan sovereign credit profile and result in further
rating downgrades at the credit rating agencies. This could lead to additional volatility in Japanese capital and currency
markets.
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